Document Type

Working Paper

Publication Date



taxation, realization, deferral, mark to market, 16th Amendment, U.S. Constitution


The Tax Cuts and Jobs Act of 2017 imposed a tax, the “transition tax,” on as much as 31 years of undistributed, accumulated corporate income. This article focus on that transition tax as it evaluates thefunction and constitutionality of the tax and considers whether the transition tax might serve as a model for addressing the broader problem of deferred income in the United States. The article views the transition taxas joining the expatriation tax and other mark to market inclusion provisions in abandoning any pretext that there is continued vitality in the realization principle as something more compelling than any other longstanding and obsolescing tax principle. Recommending that Congress seize the Tax Cuts and Jobs Act moment and discard the general rule deferring the inclusion of gain in income through a realizationrequirement in favor of the annual marking to market of all the taxpayer’s property, the article models a general mark to market transition tax after the new transition tax on deferred foreign income. The proposal recommends inclusion of the net gain in taxpayers’ incomes at significantly reduced rates of tax, including one rate for liquid assets and a lower rate for illiquid assets and an opportunity to pay the tax in installments. Following the initial inclusion under this transition tax, gain and loss would be included annually consistent with comprehensive tax base definitions under an accrual system of taxation based on marking to market. Growth or decline in the value of taxpayers’ property would be taken into account income annually. In some instances permitting some taxpayers to defer payment of the tax until disposition of the property may be desirable but the continued deferral might incur an interest charge.